June 4 (Bloomberg) -- China’s stocks fell the most in six weeks on speculation demand for consumer appliances will slow and as small-company shares extended a slump after valuations jumped to a two-year high.
Gree Electric Appliance Inc. and TCL Corp. led a gauge of consumer companies to the second-biggest drop among industry groups after the government ended subsidies for home appliances at the start of June. Qingdao TGOOD Electric paced losses for the ChiNext index, which has slid 4.8 percent over three days after its price-earnings ratio jumped to the highest level since June 2011. Yanzhou Coal Mining Co. lost 2.8 percent after the Hong Kong-listed shares were cut at Bank of China Ltd.
The Shanghai Composite Index fell 1.2 percent to 2,272.42 at the close. It dropped for a fourth day, the longest losing streak in two months. The CSI 300 Index slid 1.4 percent to 2,565.67, as all 10 industry groups lost at least 1 percent. The ChiNext fell 2.8 percent, paring this year’s gain to 43 percent. The Hang Seng China Enterprises index was little changed.
“The main index will remain weak for at least two weeks, as it will continue to be dragged down by the decline of small-cap stocks, which are being sold by investors after big gains,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “The deciding factor to drive stocks upward will be company earnings. Until we see signs that company earnings will be good, the market performance will be lackluster.”
Chinese stocks have slumped amid concern small businesses are struggling. The official Purchasing Managers’ Index for smaller companies slid to 47.3 in May, even as the broader gauge rose to 50.8, a report yesterday showed. A PMI index from HSBC Holdings Plc and Markit Economics that includes small enterprises fell more than forecast to 49.2, an eight-month low.
The government is scheduled to release reports on trade, inflation and industrial output this coming weekend. Exports probably gained 7 percent in May, down from the previous month’s 14.7 percent, according to the median forecast of 24 economists surveyed by Bloomberg. Inflation probably accelerated last month, while industrial output grew 9.3 percent, unchanged from the previous month, surveys showed. Trade data are due June 8, while the other reports are scheduled for the following day.
A gauge of consumer-discretionary companies in the CSI 300 fell for a fourth day, losing 2.4 percent. TCL, a television maker, slid 8.2 percent to 2.58 yuan. Gree Electric, the biggest maker of air-conditioners, dropped 1.9 percent to 26.04 yuan. Shanghai Friendship Group Inc. paced declines for companies in the Shanghai Composite’s commercial index, sliding 3.7 percent.
China ended subsidies for purchases of energy-saving home appliances from June 1, according to a statement on the Ministry of Finance’s website on May 29.
Qingdao TGOOD Electric paced losses for ChiNext stocks, falling 3.3 percent to 15.40 yuan, trimming this year’s rally to 48 percent. Tianjin Chase Sun Pharmaceutical Co. lost 1.5 percent to 34.54 yuan, paring the 2013 gain to 53 percent.
A measure of technology companies in the CSI 300 fell 2.7 percent, the most among the groups. Goertek Inc., an Apple Inc. supplier, dropped 2.9 percent to 34.30 yuan, paring this year’s gain to 64 percent. Neusoft Corp. lost 4.3 percent to 8.59 yuan. The technology gauge has rallied 25 percent this year, the most after phone stocks.
“We are at or near an inflection point of liquidity growth that has been supporting the modest run-up in May,” Hao Hong, the chief China strategist at Bank of Communications Co., said in an e-mailed note yesterday. “Sectors sensitive to liquidity conditions, such as the ChiNext, will be vulnerable.”
China’s crackdown on financial deals disguised as copper trades is helping curb yuan appreciation and worsening the tightest money market in more than a year. The benchmark seven-day repurchase rate averaged 3.57 percent in May, the highest in 13 months. The one-year swap contract, the fixed cost needed to receive the floating repo rate, climbed five basis points to 3.35 percent yesterday.
Yanzhou Coal Mining lost 2.8 percent in Shanghai and 1.6 percent in Hong Kong after the Hong Kong-listed shares were downgraded to sell from hold at Bank of China.
Trading volumes in Shanghai index were 0.9 percent above the 30-day average today, data compiled by Bloomberg show. The benchmark index trades at 9.3 times 12-month estimated earnings, compared with a seven-year average of 15.5 times, according to data compiled by Bloomberg. The Bloomberg China-US Equity Index advanced 1 percent yesterday.
The Shanghai Composite gained 5.6 percent last month, the most since December, after interest-rate cuts by central banks around the world spurred capital inflows and policymakers accelerated reforms of the economy by allowing private investment in industries such as telecommunications.
Fujian Guizhentang Pharmaceutical Co., a Chinese maker of bear-bile products, withdrew its application for an initial public offering as regulators increased scrutiny of companies seeking listings.
IPOs in China have been suspended since October as investor appetite for new stock waned amid equity-market declines. The securities regulator may begin approving IPOs again as early as mid-August, the 21st Century Business Herald reported May 29, citing an unidentified person close to regulator.
-- With assistance from Belinda Cao in New York. Editors: Allen Wan, Chan Tien Hin
To contact the editor responsible for this story: Darren Boey at firstname.lastname@example.org